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For a hedge to work, the futures contract must continue until actual delivery takes
place.
When monopolies exist, they are almost always found in mature industries.
The major functions of an investment banker are performed as part of the operations of
the secondary market.
The speculative premium of a put as a percentage of stock price represents the percent
decline in the stock price necessary to break even.
The primary reason for the upward market movement in the value of the acquisition
candidate is the low premium that is offered over current market value in a merger or
acquisition.
The Dow Jones Industrial Average is not the most accurate market measure, because of
its blue-chip stock composition, and its bias toward high-priced stocks.
The essence of the contrary opinion rule is that it is easier to figure out who is right than
who is wrong.
If you buy one option and write one option at a different strike price on the same
underlying stock, you are creating a "spread."
An investor is indifferent between points on a risk-return indifference curve, though not
indifferent to achieving the highest curve possible.
Finding high income (yield) and growth in the same investment is a relatively standard
practice.
The regional exchange plays an important part in the trading markets.
Firms with highly liquid cash positions may be attractive merger candidates, mainly
because their cash can be used to pay dividends.
Investors who follow the bottom-up approach to stock valuation are referred to as
industry-analysts.
A secured corporate bond is referred to as a debenture.
The Barron's Confidence Index is used to observe the trading pattern of investors in the
stock market.
The lack of barriers to entry tends to help established firms by giving them power to
increase prices and profits.
Assuming no reinvestment, the total return on mutual fund shares is the total ending
value of your shares, divided by the total beginning value of your shares.
Gold ownership is considered a hedge against inflation.
One of the main reasons institutional investors like ECNs is that they allow anonymity
in trading.
Expansions of economic activity during the nine peace time business cycles from 1945
to 2009 have averaged approximately 55 months.
Options on stock index futures may settle on a cash basis or exercise the option to
obtain the futures contract.
Listing all balance sheet items at historical cost helps to reduce the distortion in profits
caused by inflation.
Less developed countries may provide even greater risk returns in a portfolio than
developed countries.
The point of tangency between the efficient frontier and the Security Market Line is
considered to represent an optimum portfolio.
The best strategy in a new public offering is often to sell the stock shortly after it
becomes public.
Under some mortgage arrangements, the lender may loan the funds at a rate well below
the current market rate.
Treynor uses beta as a measure of risk.
An important consideration with an open-end fund is whether it is a load fund or a
no-load fund.
The method that starts the stock valuation process with an economic analysis is called
the top-down approach.
Lower-quality bonds tend to be in high demand during a recession.
The Value Line Average reflects changes in stock prices, rather than value of shares
outstanding.
The Statement of Financial Accounting Standards (SFAS) No. 95 requires that the
statement of cash flows be divided into three sections: cash flows from operations,
investments, and financing.
Real assets, because of increasing replacement value and scarcity, tend to perform better
than financial assets during periods of high inflation.
Money market fund rates do not closely track short-term market interest rates, because
the maturities of assets held in money market portfolios generally range from one to six
months.
Speculators are not significant participants in the commodities markets.
Those who engage in short-term market tactics are considered traders.
The statement of cash flows tells us
A.what the accounting profit or loss is.
B.how cash was created.
C.the actual profit or loss.
D.the actual value of assets and liabilities.
E.the source and use of net income.
Which of the following is NOT a reason for the failure of investment in small firms to
catch on as an important strategy?
A.There is a lack of institutional investors
B.Information on these smaller firms increases the efficiency of the market
C.Some investors are not properly positioned for the segmented market
D.All of the above are reasons
Which of the following statements about U.S. Treasury securities is true?
A.The interest earned on Treasury bills is fully taxable by states
B.All Treasury securities are considered to be risk-free
C.The maturities of Treasury bills, notes, and bonds tend to be different
D.More than one of the above is true
An advantage to investing in foreign markets is:
A.diversification.
B.that it is easy to profit from foreign currency exchange.
C.that there is more potential to profit from foreign markets than domestic markets.
D.that there is less risk involved in investing in foreign markets.
The largest segment of the corporate bond market consists of
A.public utilities.
B.rails and transportation.
C.financial issues.
D.industrial issues.
The success of a short investment position depends on:
A.a level stock price.
B.a declining stock price.
C.an increasing stock price.
D.declining interest rates.
E.More than one of the above
Duration represents the weighted average life of a bond where the weights are based on
the:
A.future value of the individual cash flows relative to the present value of the total cash
flows.
B.present value of the individual cash flows relative to the future value of the individual
cash flows.
C.present value of the individual cash flows relative to the present value of the total
individual cash flows.
D.future value of the individual cash flows relative to the future value of the individual
cash flows.
The gold coin that trades at the smallest premium over its pure bullion value is:
A.gold bullion coins.
B.common date gold coins.
C.old and rare coins.
D.the American double eagle.
Excess returns are equal to the:
A.total portfolio return minus the beta.
B.total portfolio return minus the return on the S&P 500.
C.total portfolio return minus the risk-free rate.
D.total portfolio return minus the standard deviation.
The P/E ratio approach to stock valuation is based on:
A. a yearly range of historical P/E ratios resulting in an average expected P/E ratio, an
earnings forecast derived from expected growth rates in earnings, and the stock's
current P/E ratio.
B. the average yearly P/E ratio, relative to the market; a yearly range of P/E ratios; and
earnings based on an assumed constant growth rate.
C. an increasing yearly range of P/E ratios and an earnings forecast based on the EPS of
previous years.
D. The current P/E ratio, compared to the P/E ratio of some market index.
Public utility issues have a greater yield than other corporate issues, primarily because:
A.nuclear utility issues carry an extremely high risk premium.
B.public utility issues generally have a longer maturity.
C.investor demand for utility issues is greater than for other issues.
D.utilities' demands for funds is greater than that of other segments.
The week-end effect indicates that stocks tend to ___________ on Friday and
___________ on Monday.
A.decline; peak
B.decline; decline
C.peak; peak
D.peak; decline
A closed-end fund might trade for less than net asset value if:
A.the fund has a poor record of prior performance.
B.it is a new fund trying to attract new investors.
C.it is heavily invested in an unpopular industry.
D.A and C
In the non-constant growth model where the first phase of growth is 5 years, followed
by a second phase of constant growth:
A. P5= D6/(Ke-g).
B. P0 = the present value of dividends from years 1 - 5 plus the present value of P5.
C. the company's growth rate is probably higher than Ke during the first 5 years.
D. All of the above are correct
The _______________ has/have the most restrictive listing requirements.
A.Regional exchanges
B.ECNs
C.NASDAQ Stock market
D.New York Stock Exchange
E.American Stock Exchange
Inflation-indexed Treasury securities provide returns through:
A.interest payments, plus a conversion privilege.
B.interest payments, plus an increase in value due to inflation.
C.tax-exempt interest payments.
D.cumulative interest payments.
Studies of the small-firm effect indicate that there may be superior return potential in
investing in smaller-capitalization firms, because:
A.the high P/E ratios of many of these firms eventually lead to superior returns.
B.smaller firms have fewer expenses, therefore, making more money for their investors.
C.there is less efficiency in this segment of the market, due to minimal institutional
participation.
D.smaller firms are always growing, along with the returns that their investors receive.
An analyst can judge a company's level of debt by comparing these ratios:
A.return-on-equity to total debt-to-assets
B.return-on-equity to total asset turnover
C.return-on-equity to debt turnover
D.return-on-equity to return-on-assets
E.return-on-equity to current ratio
The Nikkei average relates to stock movements in what market?
A.Korea
B.Japan
C.Austria
D.Australia
E.China
The stock price of an acquisition candidate changes dramatically prior to announcement
because of:
A.the candidate's estimated cost of capital.
B.the high premium offered for the stock of the candidate.
C.information leaks.
D.More than one of the above
Real assets may be effective for portfolio diversification because:
A.they provide an effective hedge against deflation.
B.they are perceived as a safe haven for investments.
C.real and financial assets are less positively correlated than financial assets alone.
D.None of the above
Mutual funds have several disadvantages. Which of the following would apply?
A.Diversification of assets reduces risk
B.Mutual funds allow an investor to choose an international portfolio with high risk
C.Mutual funds, on average, do not outperform the market
D.No-load funds minimize transaction costs
Which of the following are NOT examples of institutional investors?
A.Mutual funds and pension funds
B.Insurance companies
C.Commercial banks
D.All of the above are institutional investors
The hurdle rate is:
A.the rate of money expenditure in a new venture.
B.the rate charged to the most credit-worthy investors.
C.the rate paid to the investors before the general partners' cut.
D.the rate of interest charged on the borrowing firm by the venture capitalists.
The investor in deep-discount bonds generally accepts a lower yield because of:
A.the unique conversion feature associated with deep discount bonds.
B.the extremely low risk of a call.
C.the fact that the return represents pure interest income.
D.More than one of the above
Which of the following investments would theoretically always carry the highest risk
premium?
A.U.S. treasury bill
B.Common stock
C.Preferred stock
D.Corporate bond
E.Any one of the above
All of the following are obstacles to foreign investing, except:
A.political risks associated with foreign nations.
B.language barriers.
C.diversification difficulties.
D.market efficiency.
What is characteristic of late-stage companies?
A.They are near bankruptcy
B.They are late to bring products to the market
C.They are producing and shipping goods and are often two or three years away from
an initial public offering
D.They are highly risky, and the failure rate for venture capital investors is quite high
A ____________ requires full payment for the purchase of securities, while a
_____________ allows the investor to borrow a portion of the purchase price from the
brokerage firm.
A.money market account; cash account
B.cash account; charge account
C.cash account; margin account
D.type 5 account; a type 2 account
Which of the following are assumptions of the capital asset pricing model?
A.Funds can be borrowed or lent in unlimited quantities at risk-free rate
B.The objective of all investors is to maximize their expected utility over the same
one-period time frame using the same basis for evaluating investments
C.There are no taxes or transaction costs associated with any investment
D.All of the above are correct assumptions
One of the functions of a specialist is:
A.to manipulate price continuity.
B.to change quotation spreads.
C.to measure market depth as needed.
D.to execute special orders for floor brokers.
Why do industries usually enter the decline stage?
A.Product innovation has not increased the product base over the years
B.Low dividend payout ratios have kept spending in research and development down
C.Economic recessions have lowered sales
D.Competition from foreign producers has limited profits
The primary sections of a statement of cash flows are:
A.cash flows from investing, operating, and financing activities.
B.cash flows from investing and operating activities.
C.cash flows from investing, financing, and accounting activities.
D.cash flows from investing, operating, financing, and accounting activities.
The commitment of current funds in anticipation of receiving a larger future flow of
funds is called:
A.a financial asset.
B.a real asset.
C.an investment.
D.gambling.
E.None of the above
Which of the following is not a real asset?
A.Mickey Mantle baseball card
B.100 shares of an REIT
C.Gold bullion
D.An apartment complex
